In 1982 Robert Crandell, CEO of American Airlines, phoned the Braniff Airways CEO and said, "Raise your fares 20 percent and I'll raise mine the next morning."
a. Why would he do this?
To collude to raise prices.
To increase competition.
To be a market leader.
To increase market share.
b. If you were the Braniff Airways CEO, would you have gone along?
No, doing so would lower profits.
Yes, it lowers the welfare loss of competition.
No, it's illegal to collude.
Yes, it's part of the competitive process.
c. Why should Crandell not have done this?
Explicit collusion is illegal.
It would lower total profits.
It would lower his market share.
Advertising would be more effective.